Contract farming offers a range of benefits for both producers and buyers. A contract farming arrangement can succeed and sustain only if it brings mutual benefits to both parties. While the specific advantages depend on the nature of the agreement and the local context, the following are some of the key benefits:

Benefits for Producers:

• Access to reliable markets and potentially new marketing opportunities
• Provision of inputs and services, such as seeds, fertilizers, training, technical assistance, delivery, logistic and financial services
• Opportunities to diversity by producing new, higher-yielding or higher-value commodities
• Improved planning and risk management through structured agreements in advance of production
• Capacity building from subsistence to commercial production through supported experiential learning
• More stable or increased income through guaranteed pricing, improved productivity and reduced risks
• Greater commercialization and development of agrifood value chains, in turn bringing in more economic opportunities

Benefits for Buyers:

• Improved control over production, ensuring consistent supply meeting desirable quantity, quality and other requirements.
• Overcoming constraints related to land and other productive resources and access to agrifood products without directly managing production
• Enhanced efficiency and competitiveness through increased vertical integration
• Reduced risks related to production and supply fluctuations
• Lower transaction and operational costs compared to operating own commercial production
• Improved reputation and stakeholder relations, especially when supporting smallholder producers

For a more in-depth exploration of these benefits, please refer to Module 1 of our Contract Farming Course, available online at CFRC.

Yes, small-scale farmers and producers can and often do participate in contract farming. When well-designed and fairly implemented, contract farming can be especially advantageous for smallholders, offering them access to markets and buyers that might otherwise be out of reach. By joining a contract farming scheme, small-scale producers can also benefit from, for example, guaranteed prices and quantities, access to inputs, finance, training and technical assistance.

However, for small-scale farmers to fully benefit, several conditions should be in place:

• Fair and transparent contract terms: Farmers should clearly understand the agreement and be able to negotiate terms that protect their interests.
• Collective power: Organizing into groups and getting support from producer organizations can strengthen farmers’ bargaining power and improve implementation.
• Adequate resources and skills: Farmers need access to land, infrastructure, and the knowledge required to meet the quality and quantity requirements.
• Mechanisms for breaches and disputes: Clear procedures should be established to handle disagreements or breaches of contract taht may arise.

Before entering into a contract farming arrangement, it is essential to assess whether the necessary capacities and support systems are in place to ensure a successful and equitable partnership.

Yes, like any contractual relationship, contract farming involves potential risks and disadvantages for both producers and buyers. Understanding these challenges is essential for designing fair and effective arrangements. For a more detailed analysis, we recommend reviewing Module 1 of our Contract Farming Course, available online at CFRC.

Potential risks and disadvantages for producers:

• Limited selling options, especially under exclusive sales agreements
• Power imbalances, where buyers may dominate negotiations or decision-making
• Risk of exploitation or mismanagement by buyers
• Financial vulnerability, including debt or dependency due to factors like poor harvests, inadequate support or market volatility
• Delayed payments or input deliveries, affecting cash flow and production timelines
• Higher production costs and investment requirements
• Agronomic risks, such as those linked to new crops or monocropping
• Exclusion from contracts due to lack of land, resources or technical capacity

Potential risks and disadvantages for buyers:

• Side-selling, where producers sell contracted outputs to other buyers
• Diversion of inputs, with producers using provided resources for non-contracted purposes
• Noncompliance and low performance, especially when working with inexperienced or under-resourced producers
• Increased competition, as other buyers may enter the area once contract farming proves successful
• Higher operational costs, including additional costs related to contract setup, monitoring and support
• Reduced flexibility, limiting the ability to switch suppliers or sourcing strategies
• Reputational risks, especially if disputes arise or producers are treated unfairly
• Challenges in the enabling environment, such as weak legal frameworks or lack of institutional support

By carefully assessing these risks and implementing safeguards, such as clear contracts, strong producer organizations and dispute resolution mechanisms, both parties can improve the chances of a successful and sustainable contract farming arrangement.

While contract farming can be applied to a wide range of agrifood products including crop, livestock, fishery and aquaculture products, certain commodities are generally more suitable due to their characteristics, market dynamics and production requirements.

In particular, high-value commodities intended for processing or export tend to be the most compatible with contract farming arrangements. These products often have higher market value and require specific quality standards, consistent supply and technical support - conditions that contract farming can help ensure. Examples include coffee, cocoa, tea, sugar, rubber, cotton, oilseeds, fruits, vegetables and flowers for processing or export as well as livestock and aquaculture products where traceability and quality control are essential.

On the other hand, products with strong local demand, multiple competitive buyers and easily accessible markets such as staple grains or fresh produce sold in informal markets may be less ideal for contract farming. In such cases, there is a higher risk of side-selling, where producers are tempted to sell outside the contract for cash needs or better prices, leading to contract breaches and reduced buyer confidence.

Appropriate legal and regulatory frameworks play a vital role in supporting fair and effective contract farming arrangements. It helps to recognize and protect the rights of all parties, provides legal security, and establishes mechanisms for preventing and resolving disputes.

While legislation can influence all aspects of a contract, there are several key areas where its impact is particularly important:

1. Legal recognition and protection

Legislation ensures that contract farming agreements are legally recognized and enforceable. This gives both producers and buyers greater confidence in the relationship and helps prevent exploitation or unfair practices.

2. Fair price determination

Laws can support fair pricing by allowing flexibility for parties to negotiate terms, while also protecting weaker parties—often smallholder producers—from being forced into unfavorable deals. This balance helps promote equity and sustainability in contract arrangements.

3. Dispute resolution

Legislation can promote or mandate the use of alternative dispute resolution (ADR) methods such as mediation and arbitration. These approaches can be fairer, faster, less costly and more accessible than formal court proceedings, especially in rural areas.

4. Managing exceptional events

Legal frameworks can provide guidance on how to handle force majeure events—such as floods, disease outbreaks or social unrest—that may prevent one or both parties from fulfilling their obligations. Clear rules can help mitigate and overcome such disruptions and reduce uncertainty and conflict.

These legal provisions may be found in dedicated contract farming legislation or embedded within broader legal frameworks, such as agricultural, commercial or civil codes. There is no universal model for regulating contract farming that can be recommended as best for all countries. The most effective approach will depend on each country’s legal, economic and institutional context.

A typical contract farming scheme follows a structured lifecycle involving several stages:

You should always consider having your contract farming agreement in writing.  Whenever possible, contracts should be short, straightforward, and written in a language that is easily understood by the producer. Verbal explanations and visual aids can also be helpful to ensure full understanding.

Key reasons to use a written agreement:

• Clarity and transparency: A written contract clearly documents what has been agreed upon, the rights and obligations of the parties, preventing misunderstandings and disputes.
• Reference point: It serves as a reliable reference in case of disagreements or confusion about the terms.
• Completeness: Writing down the agreement helps ensure that all essential clauses are included and not overlooked, which may happen with a verbal agreement.
• Legal protection: A written contract is easier to enforce legally than a verbal agreement.
• Better communication: It helps the parties communicate clearly, especially when the contract is written in clear, simple and easily understood language.

While each contract farming agreement is unique, there are several essential clauses that should be included to ensure clarity, fairness and legal soundness.  UNIDROIT/FAO/IFAD Legal Guide on Contract Farming provides clear guidance on contract form and content. In addition, FAO has developed model agreements and practical tools available in CFRC’s Toolkit section, to help you assess whether your contract is complete and well-structured.

At a minimum, a well-drafted contract should include clauses covering:

1. Parties involved – Clearly identify the producer(s) and the buyer or contracting company.
2. Purpose of the contract – Define the product(s) and the objectives of the agreement.
3. Production site – Specify the location(s) where the contracted production will take place.
4. Core obligations – Outline expectations regarding elements such as quantity, quality, production, input and service provision, delivery schedules, pricing and payment terms.
5. Excuses for non-performance – Define acceptable reasons for failing to meet obligations such as force majeure.
6. Remedies – Describe the actions to be taken in case of contract breaches.
7. Dispute resolution – Establish how conflicts will be resolved, such as mediation, arbitration, or legal action.
8. Duration, renewal and termination – Indicate how long the contract lasts, how it can be renewed, and under what conditions it can be ended.
9. Signatures – Ensure all parties sign the contract to confirm the agreement and legal validity with the witness.

Good contract farming agreements are the result of negotiations that are fair, transparent, and conducted in good faith, with the goal of building trust between all parties. It is essential that producers are involved from the outset of the negotiation process. Early engagement helps them understand the terms of the contract and ensures their interests and rights are adequately protected.

While direct negotiations between producers and buyers can be effective, involving a trusted facilitator – such as a government extension officer, a representative from a local NGO, or a producer organization – can help level the playing field. These facilitators can support producers in navigating the negotiation process and achieving more balanced and equitable agreements.

If problems begin to emerge, it’s important for the parties to communicate openly and early, before the situation escalates. Early dialogue allows both sides to explore solutions together and potentially resolve issues informally. Involving a trusted facilitator, such as a producer organization, government extension officer, a representative from non-governmental organization or development partner, can help guide the discussion and ensure fairness.

If informal talks do not lead to a resolution, the next step may be mediation, where an independent mediator helps the parties find common ground. While mediators facilitate dialogue, they do not impose decisions. If mediation is unsuccessful, the dispute may need to be referred to local arbitration bodies or the courts.

Throughout the process, it is important to seek solutions that aim to preserve the business relationship and fairly distribute the costs and responsibilities between the parties.

You’re in the right place. The FAO Contract Farming Resource Centre is designed to provide comprehensive information on contract farming. Here, you’ll find a wide range of publications, case studies, and bibliographic references to deepen your understanding. The platform also offers sample contracts and contact details of FAO experts who have been actively working in this field. Whether you're a policymaker, practitioner, or producer, this resource is a valuable starting point for learning and support.